Alaska gets China backing for liquid natural gas project

A liquid natural gas deal between China and Alaska was announced Thursday, just one among the $250 billion in U.S.-China deals unveiled this week during President Donald Trump’s visit to Beijing.

While President Trump will present the deal back home as a trade success, it is a far cry from the commercial agreements needed for the U.S. to reduce its trade deficits with Asia and China, in particular, according to Platts.

The non-binding deal was signed by China Petrochemical Corporation or Sinopec, CIC Capital Corporation, Bank of China, Alaska Gasline Development Corporation (AGDC), and the State of Alaska is expected to produce 20 million metric tons a year of LNG.

“There are more steps before a final investment decision is reached,” Alaska Governor Bill Walker said in an emailed statement. “This agreement has all five necessary signatories: the buyer, the lender, the investor, the developer and the state.”

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AGDC President Keith Meyer said it will take until mid-2018 for all the parties to have their respective roles defined, and the final agreement should be in place by the end of 2018. Still under discussion is state-owned Sinopec being the customer for the LNG and the holder of up to 75 percent of the project's LNG capacity.

This would leave about 25 percent left over to sell to other Asian countries. Sinopec could take part in the construction of the project, according to Meyer in return for the 75 percent of LNG produced, however, this will mean the cost of LNG will be dependent on Sinope's cost of capital.

“The price of the LNG is going to be tied to the cost of finance,” Meyer said. “It’s going to result in a low cost of LNG, depending on the creativity and the largess of the Chinese banks.”

An example of a natural gas pipeline

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The project has a lot of questions still unanswered

The project will have a total investment of as much as $43 billion and create 12,000 construction jobs. The export project "comprises three liquefaction trains at Nikiski in south-central Alaska, an 800-mile gas pipeline, a gas treatment plant on the North Slope; and various interconnecting facilities to link the Prudhoe Bay gas complex to the treatment plant," according to Governor Walker.

Exxon Mobil Corp., ConocoPhillips, BP Plc and TransCanada Corp. were involved in the project, but have now distanced themselves after estimating in 2012 it would cost $65 billion and take at least a decade to construct. As of 2017, all have withdrawn from the project.

A major problem that could throw a wrench into the project is the global glut of LNG. New suppliers have come online from Australia to the U.S. Gulf Coast, slowing further investments, including the expansion of existing projects.